How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Banco Bradesco SA (NYSE:BBD).
Is BBD a good stock to buy now? Prominent investors were becoming hopeful. The number of long hedge fund bets moved up by 2 recently. Banco Bradesco SA (NYSE:BBD) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that BBD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to check out the new hedge fund action encompassing Banco Bradesco SA (NYSE:BBD).
Do Hedge Funds Think BBD Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in BBD a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Banco Bradesco SA (NYSE:BBD), with a stake worth $89.4 million reported as of the end of September. Trailing Fisher Asset Management was Arrowstreet Capital, which amassed a stake valued at $45.5 million. Oaktree Capital Management, D E Shaw, and Indus Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Indus Capital allocated the biggest weight to Banco Bradesco SA (NYSE:BBD), around 1.46% of its 13F portfolio. Discovery Capital Management is also relatively very bullish on the stock, dishing out 0.66 percent of its 13F equity portfolio to BBD.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. Discovery Capital Management, managed by Rob Citrone, initiated the most outsized position in Banco Bradesco SA (NYSE:BBD). Discovery Capital Management had $4.3 million invested in the company at the end of the quarter. Kevin D. Eng’s Columbus Hill Capital Management also initiated a $1.3 million position during the quarter. The other funds with brand new BBD positions are Paul Tudor Jones’s Tudor Investment Corp, Dmitry Balyasny’s Balyasny Asset Management, and Gavin Saitowitz and Cisco J. del Valle’s Prelude Capital (previously Springbok Capital).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Banco Bradesco SA (NYSE:BBD) but similarly valued. These stocks are Splunk Inc (NASDAQ:SPLK), IQVIA Holdings, Inc. (NYSE:IQV), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Verisk Analytics, Inc. (NASDAQ:VRSK), KLA Corporation (NASDAQ:KLAC), Marriott International Inc (NYSE:MAR), and MSCI Inc (NYSE:MSCI). This group of stocks’ market valuations are similar to BBD’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SPLK | 44 | 1031842 | -5 |
| IQV | 64 | 3333467 | -2 |
| CRWD | 71 | 4300669 | -7 |
| VRSK | 40 | 1112108 | 4 |
| KLAC | 33 | 899003 | -4 |
| MAR | 56 | 2334020 | 8 |
| MSCI | 47 | 906149 | 3 |
| Average | 50.7 | 1988180 | -0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 50.7 hedge funds with bullish positions and the average amount invested in these stocks was $1988 million. That figure was $213 million in BBD’s case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand KLA Corporation (NASDAQ:KLAC) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks Banco Bradesco SA (NYSE:BBD) is even less popular than KLAC. Our overall hedge fund sentiment score for BBD is 37. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on BBD as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on BBD as the stock returned 52.6% since Q3 (through December 14th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
